The Extent of Internet Auction Markets:An empirical study of the 2 log n rule on eBay

Internet auctions attract many potential buyers, but not many of them tend to become active bidders. In The Extent of Internet Auction Markets, de Haan, de Vries, and Zhou (2007) develop a model accounting for this fact, with the 2log n rule as its central prediction. The rule states that if the number n of potential bidders is large, the number of active bidders is approximately 2log n. Using a new dataset, this paper tests the rule’s applicability to hard-close eBay auctions, and examines a few of the underlying conditions and assumptions more closely. For eBay, the rule is rejected in its most simple form; however, some results suggest that the model may in fact hold as long as the number of active bidders is kept sufficiently high, or when only auctions with nonzero starting prices are considered.